FEDERAL COURT OF AUSTRALIA Lee v Westpac Banking Corporation [2017] FCA 1553 File number(s): QUD 211 of 2013 Judge(s): DERRINGTON J Date of judgment: 15 December 2017 Catchwords: PRACTICE AND PROCEDURE – Approval of settlement by the Court pursuant to s 33V Federal Court of Australia Act 1976 (Cth) – Proper approach to approval of settlement – whether terms of settlement "fair and reasonable" PRACTICE AND PROCEDURE – Approval of settlement by the Court pursuant to s 33V Federal Court of Australia Act 1976 (Cth) – approval of applicant's costs of prosecuting the class action claim – where applicant filed affidavit by costs assessor in support of application – timeframe within which material should be filed considered Legislation: Federal Court Act 1976 (Cth), ss 33V, 33X, 33Z, 33ZF Cases cited: Darwalla Milling Company Pty Ltd v F Hoffman-La Roche Limited (No 2) (2006) 236 ALR 322 Stanford v DePuy International Ltd (No 6) [2016] FCA 1452 Williams v FAI Home Security Pty Ltd (No.4) (2000) 180 ALR 459 Date of hearing: 15 December 2017 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 41 Counsel for the Applicants: Mr D Campbell QC Solicitor for the Applicants: Levitt Robinson Counsel for the Respondent: Mr P Jopling QC Solicitor for the Respondent: King & Wood Mallesons ORDERS QUD 211 of 2013 BETWEEN: JOHN CHARLES LEE First Applicant GLENDA MARION LEE Second Applicant AND: WESTPAC BANKING CORPORATION (ABN 33 007 457 141) Respondent JUDGE: DERRINGTON J DATE OF ORDER: 15 DECEMBER 2017 THE COURT NOTES THAT: 1. In these orders the following terms are defined as follows: (a) "Administration Costs" has the same meaning as it does in the Settlement Scheme; (b) "Class Action Costs" means the costs paid to date, the unbilled costs and the unpaid costs as each of those terms are defined in the Settlement Scheme; (c) "Group Members" means the persons described in paragraph 2 of the Further Amended Statement of Claim, other than any such persons who have opted out of the proceedings; (d) "Settlement Deed" means the Deed of Settlement executed on 18 October 2017 which is confidential Exhibit BRI-A to the affidavit of Mr Brett Imlay filed 19 October 2017; and (e) "Settlement Scheme" means the final version of the draft document which forms part of Confidential Exhibit BRI-A to the affidavit of Mr Brett Imlay filed 19 October 2017. 2. Schedule 1 of this order is marked "Confidential" and is not to be made available for inspection by any person unless otherwise ordered by the Court. THE COURT ORDERS THAT: 1. Pursuant to sections 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) the settlement of this proceeding be approved on the terms set out in: (a) The Settlement Scheme (as amended in the terms set out in confidential schedule 1 to these orders); and (b) the Settlement Deed. 2. Stewart Alan Levitt be appointed as administrator of the Settlement Scheme. 3. Pursuant to s 33ZF of the Federal Court of Australia Act 1976 (Cth) or otherwise, the Applicant be authorised nunc pro tunc on behalf of the Group Members, to enter into and to give effect to the Settlement Deed and the transactions contemplated thereby for and on behalf of those Group members. 4. Pursuant to s 33ZF of the Federal Court of Australia Act 1976 (Cth) or otherwise, only Group Members who have registered under the Settlement Scheme will be entitled to participate in the Settlement Scheme. 5. The whole of the proceeding be dismissed, such order to be stayed until the administration of the Settlement Scheme is complete. 6. Any orders relating to costs previously made in the proceedings be vacated. 7. Each party to bear its own costs. 8. Pursuant to s 33V(2) of the Federal Court of Australia Act 1976 (Cth) or otherwise: (a) the Class Action Costs be approved as follows: (i) costs paid to date of $393,731.04; (ii) unbilled and unpaid costs and disbursements up to 18 October 2017 in the sum of $1,669,818.81; (iii) unbilled and unpaid approval costs up to and including 15 December 2017 in the sum of $182,321.48; (b) the Administration Costs be approved up to the amount of $200,942.00. 9. The following documents are to be placed in a sealed envelope and marked "Confidential" and are not to be made available for inspection by any person unless otherwise ordered by the Court: (a) Schedule to the Order of Justice Derrington dated 15 December 2017; (b) Confidential submissions of Mr Jopling QC; (c) Confidential opinion of Mr Douglas Campbell QC; (d) Affidavit of Mr Brett Imlay dated 14 December 2017; and (e) Exhibit BRI-A to the affidavit of Mr Brett Imlay filed 19 October 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DERRINGTON J: 1 The application before the Court today is brought by the applicants seeking approval of the settlement of proceedings between themselves on behalf of a class and Westpac Banking Corporation. The proceedings are representative proceedings subject to the provisions of ss of the Federal Court Act 1976 (Cth) (the Act) and the application is made pursuant to s 33V of that Act. The applicant also seeks ancillary orders and in doing so relies upon the general powers of the Court contained in s 33Z. 2 I might ordinarily have reserved these reasons to provide a fuller explanation of the orders to be made. However, given the proximity of the long court vacation, I consider it is appropriate to provide ex tempore reasons now. The proceedings have dragged on for some time, and the parties are entitled to know where they stand sooner rather than later. 3 In support of the application the parties have filed a number of affidavits and written submissions. Some of those affidavits and submissions are confidential in the sense that they are not available for public scrutiny. In the ordinary course proceedings in this Court are open to public consideration. However, it is widely recognised that the settlement of proceedings are private matters between the parties themselves. In relation to representative proceedings the approval of the Court is required. To the largest extent possible the hearing of this application has been held in open court. However, necessarily, certain private matters between the parties are confidential, and the courts are sensitive to that. It has to be kept in mind that the ability of the parties to keep some matters confidential assists in the process of resolving disputes. Principles for the approval of the proposed settlement 4 The power of the Federal Court to approve a proposed settlement arises under s 33V of the Act which is as follows: (1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. 5 The general power of the Court to make orders in relation to representative proceedings arises under s 33ZF which provides: (1) In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding. Guidelines from other authorities 6 As is apparent from the terms of s 33V, the power of the Court to approve a settlement is untrammelled. Necessarily, the power must be exercised for the purposes for which it is given, taking into account the nature and purpose of the enactment under which the power is conferred. A number of authorities have reached the conclusion that s 33V(1) requires that the Court consider whether a settlement is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement (see in particular Williams v FAI Home Security Pty Ltd (No.4) (2000) 180 ALR 459 at 465-466, [19]). Whilst that general guidance is appropriate, it must be remembered that each case will need to be considered taking into account its own peculiar circumstances and merits. However, even with that in mind, there are a number of considerations which frequently arise in the Court's exercise of power in this regard. They have been identified by Jessup J in Darwalla Milling Company Pty Ltd v F Hoffman-La Roche Limited (No 2) (2006) 236 ALR 322 at 332-333 and they are as follows: (a) the complexity and likely duration of the litigation; (b) the reaction of the class to the settlement; (c) the stage of the proceedings; (d) the risks of establishing liability; (e) the risks of establishing loss or damage; (f) the risks of maintaining a class action; (g) the ability of the respondent to withstand a greater judgment; (h) the range of reasonableness of the settlement in light of the best recovery; (i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and (j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding. 7 These matters assist the Court in ascertaining whether or not any proposed settlement is within the range of what is fair and reasonable in the circumstances. In undertaking that consideration, the cautionary words of Jessup J in Darwalla are apt to keep in mind. There his Honour said at paragraph [50]: It is not, I consider, the court's function under s 33V of the Federal Court Act to second-guess the applicants' advisers as to the answer to the question whether the applicants ought to have accepted the respondents' offer; the court's function is, relevantly, confined to the question whether the settlement was fair and reasonable. There will rarely, if ever, be a case in which there is a unique outcome which should be regarded as the only fair and reasonable one. In settlement negotiations, some parties, and some advisers, tend to be more risk-averse than others. There is nothing unreasonable involved in either such position and, under s 33V, the court should, up to a point at least, take the applicants and their advisers as it finds them. Neither should the court consider that it knows more about the group members' businesses than the applicants, or more about the actual risks of the litigation than their advisers. So long as the agreed settlement falls within the range of fair and reasonable outcomes, taking everything into account, it should be regarded as qualifying for approval under s 33V. 8 That cautionary expression was reflected in more recent comments by Wigney J in Stanford v DePuy International Ltd (No 6) [2016] FCA 1452 at [116]-[117] where his Honour said: Where settlement is reached prior to judicial determination, the assessment of the proposed settlement must be undertaken mindful of the unpredictability of the applicant's and group members' fate. In those circumstances, the settlement must be viewed as a pragmatic compromise to the relevant claims. In that regard, the Court should be mindful of the fact that the parties and their legal representatives are often in a better position to appreciate the risks, and also mindful of the fact that different parties and their lawyers will have different appetites for risk. ...approval of a settlement should not be approached as if there is a single outcome that may be seen to be fair and reasonable. Reasonableness is a range, and the question is whether the proposed settlement falls within that range having regard to the known facts and circumstances, not whether it is the best outcome which the Court considers might have been achieved. (Citations omitted). The procedure to settlement 9 On 19 October 2017, an affidavit of Mr Brett Imlay was read and filed in Court. Exhibit "BRI-A" to that affidavit was a settlement deed between the parties and Mr Stuart Levitt which was dated 18 October 2017. Orders had been made to protect the confidentiality of that settlement deed. 10 Nevertheless, as is required under s 33X(1) of the Act and also pursuant to the orders made by this Court on 19 October 2017, the group members were notified of the proposed settlement and were afforded an opportunity to access that settlement deed from the week commencing 30 October 2017. 11 Despite the confidentiality of the terms of the settlement deed, the parties have agreed to make some matters publicly known. They are that: (a) Westpac will pay the sum of $7.5 million (inclusive of costs) in settlement of the claims of the applicants and group members. That amount is to be distributed in accordance with a scheme established under the settlement deed. (b) Westpac will pay an additional sum of $15,000 to the applicants representing some compensation for their time and effort in agitating the action. (c) There are what are alleged to be standard releases between the parties to the settlement deed and further obligations requiring the parties to effect a settlement of the action before the Court. (d) The deed expressly provides that it is not effective unless and until it is approved by the Court. 12 There are other terms and conditions of the settlement deed which are confidential between the parties, and they relate inter alia to the mechanisms by which the deed will be carried into effect. 13 It should be noted that directors, officers and employees of Storm Financial Limited are not eligible to participate in the terms of any settlement under the deed. The proposed settlement distribution scheme 14 Whilst the proposed settlement distribution scheme provided for by the settlement deed is confidential, the parties have nevertheless also agreed that some of its more salient terms might be publicly identified. They include: (a) That Mr Stewart Levitt is to be appointed as the administrator of the scheme. (b) That participation in the scheme requires a group member to complete an individual deed poll. (c) That Levitt Robinson's legal costs and Mr Levitt's costs of administering the scheme must be approved by the Court and deducted from the settlement prior to the individual group members' entitlements being calculated. (d) Provisions are made for the reimbursement of amounts contributed by group members. (e) The administrator will calculate each eligible group members' entitlement. (f) If a group member is dissatisfied with the calculation of any entitlement under the settlement scheme they are entitled to seek a review of that. No opposition to settlement 15 The orders made by this Court on 19 October 2017 granted any group member the opportunity to file a notice with the Court on or before 30 November 2017, indicating their objection to the Court's approval of the proposed settlement deed. By an affidavit dated 13 December 2017, Mr Imlay, a solicitor in the employ of Levitt Robinson, has deposed to carrying out the court-ordered regime for the giving of notice to members of the class. The evidence before the Court satisfies me that all necessary steps have been undertaken to inform the members of the proposed settlement. 16 It appears that no person objects to the Court granting approval to the settlement of the proceedings in accordance with the settlement deed. Given that the group members were fully informed of the nature and scope of the proposed settlement, the absence of any objection can be taken as an indication that the proposal is generally acceptable to the members. Is the settlement fair and reasonable? 17 As indicated, it is not for this Court to second-guess the commercial or pragmatic reasons for compromise in proceedings of this nature. Nevertheless, it must be determined whether the proposed settlement falls within the broad range which might be considered to be "fair and reasonable". In that regard it can first be noted that the amount payable by Westpac under the settlement agreement is a relatively small sum in the context of actions of this nature. This probably reflects an assessment by both parties as to the strength of the applicants' case. 18 My assessment of the fairness and reasonableness of the settlement takes into account the careful and thoughtful opinion of Mr Campbell QC for the applicants. That document is, of course, confidential, and nothing I say in these reasons necessarily reflects any of the content of his opinion. 19 In the open written submissions of Westpac, Mr Jopling SC provided a very useful and careful analysis of the case alleged against the bank, at least from its point of view. There is no need to recite all of the grounds which he agitated. It is, however, appropriate to acknowledge that the bank perceives that the applicant had limited prospects of success were the proceedings to progress to trial. Mr Jopling SC's submissions identify that the bank's position, vis-à-vis the class members, was merely, in its view, one of a lender to Storm clients who had otherwise eschewed the alternative avenues of finance which were promoted by Storm Financial Limited. That, of itself, provides a significant issue in relation to the question of the quantum of the settlement. Mr Jopling SC points out, not without some force, that as a matter of causation if Westpac had performed the duties which the applicants allege it owed them and thereby did not lend any money, the most likely consequence would be that the applicants would have borrowed from other vendors and invested in the same grossly improvident scheme. Were that to be the case, they would be in exactly the same position as they are now, if not worse. 20 The bank also identifies that it merely provided finance to investors who had been advised to enter into the Storm Scheme by the Storm financial advisers. The bank identifies that the improbable case against it is that it owed a duty to advise people who approached it for finance not to adopt and follow the financial advice which had been provided by third parties. As Mr Jopling SC points out, that is perhaps a difficult case given that the borrowers had sought, independently of any action of the bank, the advice of Storm. Mr Jopling SC also points out the difficulty of attributing relevant knowledge to Westpac in relation to the investment activities sought to be pursued by the applicants. There is no need to consider those arguments in any detail. 21 That said, Westpac also eschews any liability based upon any allegation of unconscionable conduct. It points out that there was nothing pleaded in the statement of claim against it which would suggest that there was any conduct which reached the level required for a successful cause of action of that nature. It also relied upon the fact that none of the applicants were suffering any special disadvantage which is a necessary element for a claim in equity of this nature. 22 There is no need for me to consider the linked credit provider claims or the negligence claims. Each party has identified their assertions in relation to it. It can be said that some levels of risk may have existed either way in relation to these causes of action. 23 The bank also points out the applicants may have been hampered in the successful pursuit of their actions by issues of causation. Additionally, some of the causes of action were proportionate claims; the consequence of which is that any liability which might have been sheeted home to Westpac may well have been substantively less than that which was claimed. 24 The action was settled between the parties after an extended mediation and as a result of the taking of legal advice. There is no doubt that the resolution of the matter was the consequence of mature and rational consideration. It would also have taken into account the extensive costs and risks were the trial to have run. 25 In the circumstances, given the complexity, the duration, and the risks involved in litigation, the resolution by the applicants and the bank at the level identified represents a settlement within the balance of that which might be described as reasonable and fair. 26 As has been mentioned, the class members do not oppose the settlement at the amount which is the subject of the settlement deed, and that at least indicates their tacit support for its resolution this way. 27 If the matter were not resolved at this point, the parties would necessarily have been forced to proceed to a long, expensive, and not to mention complex, trial. This action is not funded save by contribution from members. That makes the task of progressing through the expensive trial rather more problematic from a risk point of view. 28 In the circumstances, taking into account the matters to which Jessup J identified in Darwalla, I have reached the conclusion that the proposed settlement is fair and reasonable. 29 It should be mentioned that the applicants seek a slight amendment to the proposed settlement deed that had been notified to the members. That slight amendment concerns the prevention of a member of the applicant class obtaining what is, in essence, double compensation if they participated in any other class action. Mr Campbell QC, for the applicants, submits that it was not known whether any such person would be affected by the amendment to prevent double compensation, and that it is something one would expect the members of the class would agree to, and I accept those submissions. 30 I therefore propose to approve the scheme as amended. Approval of costs 31 The applicants also seek an order of this Court to approve the costs of prosecuting the class action claim by the applicants' solicitors. These costs fall into a number of categories. 32 At an earlier directions hearing I raised the special concern which the Court has in relation to costs charged in class actions. I raised the possibility of an independent costs assessor being appointed. It ought to have been apparent to the parties, and especially to the applicants, that the Court was very conscious about the amount of costs which might be claimed by the solicitors for the applicants on any application such as this. That ought to have suggested that any material which might have been relied upon as supporting the claimed costs should have been filed well before the hearing of the application. Unfortunately no substantive material was sought to be filed until the matter was called on this morning. That necessarily had the consequence that the Court had little time in which to consider it before the oral submissions were made. That is not the way in which matters of this nature should be approached. 33 Nevertheless, and not without a degree of hesitation, I was prepared to allow the issue of the approval of the solicitors' costs to be ventilated. 34 I should say that many of the issues concerning the question of solicitors' costs in proceedings of this nature might be overcome were the applicants, through their solicitors, to approach the Court for directions for the appointment of an independent costs assessor before consideration was given to bringing on an application for approval of costs. 35 In this matter, the total costs sought by the applicants to be paid to the solicitor is $2,245,871.33, which represents the costs claimed for work done to this point in time. A further amount of $200,942.50 is sought in respect of the costs of administering the payment of the settlement funds to members of the class. 36 In total, the costs of the proceeding appear to be close to $2.5 million, and those funds are to be deducted from the settlement, so of $7.5 million that leaves approximately $5 million to be paid to the members of the class. 37 There can be little doubt that the legal costs totalling approximately 30%of the total amount recovered in an action of this nature is high, and that necessarily gives the Court reason to consider the claimed amount in detail. 38 For the purposes of today's hearing, the applicants rely upon the affidavit of Mr Mazzeo, a costs consultant in Victoria. In his affidavit, Mr Mazzeo identifies a number of other cases in which he has provided reports in relation to solicitors' costs in class actions. He appears to be, at least from his own evidence, qualified to give evidence in this regard. 39 Mr Mazzeo has purportedly undertaken an assessment of the costs claimed by Levitt Robinson and given his imprimatur to them. He sets that assessment out in his affidavit which was filed by leave today, which is prepared in the nature of an expert report. Mr Mazzeo claims that he has assessed the costs to be fair and reasonable. He has assessed the amount of the work which was undertaken by the solicitors and considered the rates for the various practitioners who have performed it. He identifies a number of areas in which he says the costs charged by Levitt Robinson are generous to the applicants, and asserts that the rates for which the work was charged was at the lower end of the range for comparable work by similar firms in Sydney and Melbourne. He says that he undertook the above consideration by attending the offices of Levitt Robinson and reviewing the files in the proceedings. 40 The settlement of $7.5 million is relatively small for a class action of this type, and the costs of a court-appointed independent expert in addition to the costs already expended might not be insignificant. Were the settlement sum somewhat larger, it might have been appropriate to utilise some of it for the purposes of having the evidence of Mr Mazzeo verified by an independent costs assessor. As matters stand, I am prepared to accept that the amounts claimed by the solicitors are fair and reasonable and therefore should be paid. I am comforted in that conclusion to a small degree by the fact that the solicitors for the applicants had entered into and was, at all relevant times, bound by a retainer agreement. 41 In the circumstances, I am prepared to make the orders approving the costs sought. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate: Dated: 15 December 2017